Waiving a late payment fee once the customer pays

Summary

• The fee is designed as a nudge. Many businesses use their statutory right to charge late fees as a way to nudge the customer, but waive it if payment is received.
• Waive when the money has been paid. The moment to waive the late fee invoice is when the money arrives, not if someone objects to the late fee.
• A late fee invoice raised in Xero needs to be voided. Doing this manually can mean invoices slip through the cracks. A fee held in Trove and never pushed to Xero leaves nothing to reverse.
• Some fees shouldn’t be waived. Repeat offenders and accounts heading for escalation are the exceptions.

Why a late fee can lead to faster payment

Statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 gives you a real, enforceable claim. That interest also accrues every day so the customer can see a growing cost associated with not paying you in a timely manner.

Combined, this shows the customer you are taking non-payment seriously and usually moves your invoice to the front of the queue in their next payment run.

Waiving a late payment fee if the original invoice is paid

When you first apply the late fee, you can also communicate that it will be waived if prompt payment is made. This shows the customer you are not out to maximise your revenue. You are just looking to recover what’s owed to you.

This is how many businesses run it. The policy applies automatically, the fee appears on the statement, and the waive is offered as a routine step once payment lands.

Voiding the late fee invoice in Xero

If you used the standard Xero workaround, or connected Xero to Treasure by Trove so it raised the fee for you, the fee is a real sales invoice in your ledger. Ideally at this point, you will either raise a credit note against that invoice or void it.

Trove avoids the problem by giving you the option not to raise the late fee invoice in the first place. The fee sits against the overdue invoice and appears on the customer’s statement, but only enters Xero if you decide to formalise it. Waive it before that point and there’s nothing to reverse, because nothing was ever written to your ledger.

Showing late payment interest on a statement covers how this works in Trove.

How to tell the customer that their late fee has been waived

Make sure to communicate clearly so the customer doesn’t think the late fee has just disappeared in error.

Something like this is enough:

It does three things: confirms payment, makes the waiver an explicit decision rather than an oversight, and restates the terms without a threat attached.

When not to waive a late fee

If a customer objects to the fee before paying, dropping it teaches them that objecting works. In this case, hold the fee, restate the terms, and waive it when the money arrives.

The other case is the account has started paying late out of habit. They may have learned through repeated late payment that you will raise the late fee. Get ahead of this by warning them you will not waive the next one. Then if they pay late again, apply the late fee.

Frequently asked questions

Do I lose my legal right to interest if I waive it once? No. Statutory interest arises separately on every late invoice. Waiving it on one has no effect on the next.

Should I waive the compensation fee as well as the interest? Usually yes, and together. Waiving one and keeping the other invites a conversation about why, over a small sum.

Does waiving affect VAT? No. Statutory interest and the compensation fee are outside the scope of VAT, so neither charging nor reversing them touches your VAT position.

Can I waive a fee in Treasure? Treasure calculates fees and can raise them in Xero, but waiving is a Trove feature. A fee raised in Xero through Treasure is reversed the same way as any other invoice, with a credit note.

Getting started

The full guide to late payment fees in the UK covers what you’re entitled to charge before deciding what to waive.

Treasure is a free late payment fee calculator that connects to Xero, with no card and no limits. If you want fees applied, chased and waived automatically, Trove runs a free 30-day trial or you can book a demo.